Self-disclosure versus tax evasion deluxe

At the latest since the Uli Höneß trial one thing is quite clear: A voluntary declaration is not always easy! Who is responsible for a self-disclosure made if it is not complete? Who advises tax evaders anyway? And when does it make sense to make a voluntary declaration? And above all: How does one write a voluntary declaration so that it really has a mitigating effect on the punishment?

We have dealt with this topic and consulted Dr. Johannes Fiala, lawyer from Munich.

Since the exciting trial before the Munich Regional Court II, which dealt with tax evasion amounting to millions, one hears everywhere about voluntary declarations, tax honesty and mitigation of punishment, but also about statute of limitations, tax liability and “staged voluntary declaration”. What does all this mean?

We’ll start from the beginning: A numbered account in Switzerland. Worth millions. Residence in Germany. Tax returns are dutifully submitted annually and the horrendous taxes are also diligently paid. Of course, the numbered account is not mentioned. There’s not much happening. A little speculation in the stock market – a profit. A deceased heiress – the numbered account is fed. But then, eventually, that fine little number account turns into a heavy vice. For your own mind. Of course, one does not feel like a felon, but the danger of being discovered is constantly increasing.

A voluntary declaration

Actually, it sounds pretty simple. The tax evader informs the German state that he has evaded taxes, that he is prepared to pay them in arrears and that in future he will dutifully declare all his assets, including those from abroad. So far so good – but we wouldn’t be in Germany if it were that simple: a voluntary declaration is anything but simple. The following applies primarily: a voluntary declaration is only and exclusively effective in its entirety if it is made in full and if it is received by the tax office before the latter has commenced investigations. The maxim is: disclose the facts completely and discuss the legal consequences later in the assessment and appeal proceedings with an “open mind”.

Often the devil is in the detail: foreign banks deliver the necessary documents perhaps too slowly, an online access to the data retrieval is not possible and quite honestly: who has the documents about account movements of a numbered account abroad at home neatly filed? So here you are well advised to estimate the annual evaded taxes sufficiently high. In the best case, a correspondingly high, subsequent advance payment is made at the same time. Until the subsequent hearing, the tax evader and his advisor have enough time to request the missing documents and, if necessary, to adjust the tax liability downwards. However, the voluntary declaration is then effective here.

The situation is different if, as happened recently, one files an estimate of tax liability that is too low. In connection with an unsorted pile of documents without systematic compilation and evaluation of the facts and without comprehensible calculations, the employees of the tax office then have a lot of work. This they let themselves sufficiently remunerate – the tax debt is estimated on the part of the tax office, the self-disclosure is stepped, and/or it is considered now as incomplete and is thus altogether ineffective.

Adhesion and liability

The primary rule is: “It’s always the client who goes to jail!” In principle, this statement is sufficient. The tax evader must provide complete information and must ensure that all necessary documents as well as evidence for the complete determination of the tax liability are available to the advisor. The submission of a voluntary declaration by the taxpayer on the basis of incomplete information to the tax advisor can be judged as conditionally intentional.

Differently the case is, if the fiscal advisors withhold for example vouchers from the tax authorities, in order to make not recognizable on state side a legally erroneous, fiscal computation of the advisor. Here, advisors risk their own punishment.

A “gangland tax scam”

A gang consists of at least three members. Whether these gang members are related to each other, are in-laws or just friends, or have business connections, is completely uninteresting. If the taxpayer, together with his tax advisor and a defense attorney, decide to confess only part of the truth in a voluntary disclosure, they are committing gang tax fraud.

By the way, co-partners and family members can also act illegally as a gang for tax purposes. Then each of the participants can act alone to self-disclose, but would trigger investigations against the other gang members. Here it is called: mass start. All voluntary declarations must be submitted at the same time, even if different tax offices are approached, in order to obtain immunity for all members.

Good advice is expensive

Negligence on the part of the taxpayer is attested if he relied on the advice of “wealth management or private banking”. This is where the Legal Services or Legal Advice Act comes into play. If an angelbliche evader on a tax CD is discovered, then alone an obvious assumption is not sufficient yet for its conviction. Rather, the taxpayer may also be the object of indirect perpetration by his insurance company or bank if he has been led to believe that his tax exemption is legal to that extent. Typically, financial products from abroad are advertised as being tax-free in the home country.

Clean washed

For example, putting assets into a checking account interest-free, paying into a life insurance policy, or storing gold in a safe deposit box and sitting out the statute of limitations on tax evasion year after year. Black money and all property acquired with it must be economically consumed. Otherwise, one should proceed to self-disclosure.

Conclusion

The obvious suspicion of tax evasion is not sufficient for a conviction. An incomplete voluntary disclosure no longer has the effect of mitigating the penalty and advisers can help but only very rarely take the rap for a failed voluntary disclosure!

by Dr. Johannes Fiala

by courtesy of

http://www.harbor-magazin.de (Harbor III. 2014 edition)

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About the author

Dr. Johannes Fiala
PhD, MBA, MM

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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